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Confidential. © 2018 IHS MarkitTM. All Rights Reserved.

QUE$TOR 2018 Q1

QUE$TOR Benchmarking July 2018

Energy Industry

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Benchmarking purpose

• The benchmarking analysis serves multiple purposes:

✓ Checking that the new capital cost estimations are consistent with the market changes described in

the QUE$TOR 2018 Q1 Release Notes document

✓ Understanding how technical changes impact cost changes that occur in the application

✓ Comparing the cost change effects by region, component type and cost category

• This document provides a summary of the effects that cost and technical changes have

on cost estimations when a QUE$TOR project is updated from the previous version,

QUE$TOR 2017 Q3, to the updated version QUE$TOR 2018 Q1.

• The following results are meant to supplement the market trend discussions contained in

the Release Notes document.

2

QUE$TOR Benchmarking / July 2018


Benchmarking method

• Our method of analysis consists of running a set of projects using three different versions

of QUE$TOR:

1) the previous version, i.e. QUE$TOR 2017 Q3

2) an intermediate version that only includes latest technical changes and new additional features

3) the updated version, i.e. QUE$TOR 2018 Q1, inclusive of both cost and technical changes

• The results of the analysis show the combined effect of both technical and cost changes.

• Technical changes are the changes in results from the previous to the intermediate version.

• Cost changes are the difference between the results of the intermediate build and the results of the

updated version.

• Combined changes are the difference between the previous and the updated version, i.e. effect of

cost and technical changes.

• The analysis uses a large sample of projects (~250 offshore and ~ 200 onshore) based on

real assets and potential developments all around the world.

• Every region contains both offshore and onshore projects, although the overall portfolio is

not intended to include all possible cases but to be a representative sample of what is

feasible in each region. As a result some project types or regions may be more or less

represented than others.

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QUE$TOR benchmarking portfolio offers global coverage

4


25-30 projects 10-15 projects 3-5 projects


Technical upgrades

• Technical changes implemented in QUE$TOR 2018 Q1 were:

• Subsea multiphase pumping

• Umbilical selection

• New personnel transport boat option

• Improved fluid inlet conditions for onshore production facility

• Calculation of inlet and outlet temperature for the onshore wellpad flowlines

• The technical changes that created a difference between the two versions are:

• The improved fluid inlet conditions for onshore production facility corrects the arrival temperature of

fluids entering the onshore production facility, which is now based on a mass flowrate average of all

the inlet flowlines and pipelines, using the outlet temperature of each line. This change affected the

sizing and equipment requirements of the downstream processing equipment as in most of the

cases it caused an increase in the arrival temperature.

• The calculation of inlet and outlet temperature for the onshore wellpad flowlines allows the user to

edit both temperatures. The outlet temperature is now calculated taking into account the insulation

and the construction type. This has often lead to an increase in wellpad flowline sizing compared to

the previous release, increasing both material and equipment costs of the wellpad group.

5



Major market trends

• Project cost changes reflected the most relevant market trends identified in the last six

months.

• Offshore rig day rates decreased further in some of the regions due to the limited

number of active offshore projects, high uncertainty and cautiousness in exploration and

production planning.

• Offshore vessel markets around the world continued to face significant issues, i.e.

oversupply, low offshore activity, and decreasing day rates.

• Land rig rates increased in almost all regions or remained flat.

• Steel raw material costs increased globally but with regional differences. Asian steel

prices increased less significantly than other regions.

• Equipment and bulk material costs increased in most of the regions due to increased raw

materials and labour costs.

• General labour, design and PM rates increased globally.

6



Average total project costs Q1 2018 - Q3 2017 varied

between -1.5% and +3.0%.

7

Change in offshore and onshore costs by region and project type


Source: IHS Markit © 2018 IHS Markit


Why offshore and onshore projects costs varied differently?

• Average onshore project costs increased in all regions whilst offshore there were

differences between regions.

• The Far East, North America and Australasia show a decrease in average offshore project costs as

a result of more significant decreases in installation costs.

• This difference is also due to their different inner nature. In general onshore projects tend

to be affected more quickly than the offshore ones when the market changes. Even a

short-term drop or increase in crude oil prices may cause onshore production to slow or

accelerate. A drop or increase in oil prices usually affects the capital budget for onshore

facilities much more than offshore projects, which have longer lead times on budgets and

contracts.

• Offshore production doesn’t see as much influence by the short-term pricing fluctuations

in crude oil. This protected them longer when the oil downturn started at the end of 2014

as the long-term budgets of offshore projects allowed them to resist the immediate price

crash. However, offshore activity, once depressed, takes also longer to recover.

• Onshore facilities are easier to shut off and on. They don't take as much time to slow or

stop production temporarily. With the recent oil prices increase, onshore production

facilities are recovering faster.

8



The majority of medium-to-large-value cost categories varied

between +/-10%.

9

Cost change by cost category



• These dots represent the percent changes of

the most important cost categories, based on

their value, for all types of projects (onshore and

offshore) in all regions.

• Offshore installation (dark grey dots) is the cost

category with the largest cost reduction.

• Equipment and materials (red and light blue

dots) for onshore projects are the cost

categories which increased the most for small-

to-medium projects.


Small-to-medium onshore cost categories had the largest cost

variations.

10

Cost change by project type



• These dots represent the percent changes of

the most important cost categories, based on

their value, depending on project type, in all

regions.

• Onshore cost categories showed the largest

range of variations, between -27.8% and

+55.6% (circled in red)

• Most of these extreme variations occurred for

relatively small-value cost categories.

• Offshore cost categories showed the largest

reduction for medium-to-large projects (circled in

blue).


Average offshore total project costs varied by region and

were mainly driven by installation costs.

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Average offshore cost changes by region




How and why offshore project costs varied


• Average offshore project cost changes were due to the combined effect of the

cost data update and technical adjustments.

• The Far East region showed the most significant decrease ( -1.4%) followed by

North America (-1.3%) and Australasia (-0.5%). Positive movements were

registered in the Middle East (+1.0%), Europe (+0.9%) and Latin America

(+0.7%).

• These regional variations can be explained by the combination of the cost

variations of the most relevant cost categories:

• Equipment and Materials costs increased globally with the European and Middle East

projects having the largest cost variation (~ +3%) due to the effect of the European

currencies becoming stronger vs. the USD. Note: Most of the Middle East projects had the Equipment

procurement strategy set up as European.

• Installation costs decreased in all regions except Latin America where they stayed

almost flat. The Far East saw the biggest decrease (-5.4%) followed by Africa (-3.4%)

and North America (-2.9%).

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Offshore cost key drivers were Equipment and Materials

costs …..

13

Average offshore Equipment and Materials cost changes by region




….and Installation costs

14

Average offshore Installation cost changes by region




Installation costs had the largest decrease whilst Materials

costs increased the most.

15

Average offshore cost variation by cost category and component



• The decrease in offshore vessel and offshore rig

day rates were responsible for the decrease in

offshore installation costs (Offshore loading,

Offshore drilling, Topsides, Tanker, Jacket, Semi-

sub, Spar, TLP and Offshore pipeline) and HUC

costs (Tanker, Semi-sub).

• The increase in steel prices caused the Materials

cost category to increase in all regions.


Offshore component costs varied in the range -2.6% and

+2.1%. Tanker and Offshore drilling varied the most.

16

Average offshore cost variation by component



• Offshore drilling costs were affected by the reduction in offshore vessel

and rig day rates.

• Tanker cost increased most due to the increase in tanker purchase

costs.

• Subsea costs went up due to the increase in subsea equipment cost.

Subsea installation costs are dominated by DSV day rates which

increased slightly or remained flat.


Average variations of offshore total project costs without

offshore drilling costs.

17

Average offshore cost changes by region without drilling CAPEX




Average variations of offshore installation costs by region

without offshore drilling costs.

18

Average offshore Installation cost changes by region without drilling CAPEX




Effect of drilling CAPEX on offshore project costs variations


• The offshore drilling costs have the effect to reduce the average offshore total

project cost variations in all regions.

• Without offshore drilling CAPEX, only the Far East region still shows a small

decrease (-0.1% compared to the largest decrease of -1.4% shown with drilling

costs included).

• All the other regions show an increase in offshore average project costs: Europe

(+1.9%), Africa and Australasia (+1.3%), Latin America (+0.9%), Middle East (+0.7%),

and North America (+0.6%).

• Decreased offshore rig day rates (especially in the Far East, North America and

Australasia) impacted the offshore drilling costs having a significant effect on

the average total project costs.

19


Average onshore total project costs increased globally and

were driven by drilling costs.

20

Average onshore cost changes by region




How and why onshore project costs varied


• Average onshore project costs changes were due to the combined effect of the


• For all regions the average onshore project costs increased. The variations

were between +1.0% (Middle East) and +2.9% (Latin America).

• These regional variations were the result of the combination of market trends

and technical adjustments:

• Onshore drilling costs increased globally but with regional differences: North America

(+2.0%), Latin America (+1.9%), Australasia (+1.4%), and Far East (+1.1%) had the

largest increase in land rig day rates.

• Equipment and Materials costs increased in Latin America (+4.1%), North America

(+2.7%), Australasia (+2.8%), Middle East (+0.4%) and Africa (+0.1%); these

decreased in Europe (-0.5%) and Far East (-0.4%).

• Construction costs increased between +1.6% (Australasia) and +3.8% (Africa).

• The technical adjustment of the inlet conditions for onshore production facility has

caused an increase in Equipment and Materials costs.

21


Onshore project cost changes were driven mainly by onshore

drilling cost variations…

22

Average onshore drilling cost changes by region



North America, Latin America and Australasia had

the highest increase in land rig rates


….and Construction costs

23

Average onshore construction cost changes by region




Wellpad group and production facility costs were the most

affected by the technical changes.

24

Average onshore cost variation by cost category and component



• Wellpad group and production

facility had Materials costs and

Construction costs respectively

increasing the most as both

were impacted by the technical

adjustment which improved fluid

inlet conditions for onshore

production facility.


Onshore cost components increased globally and varied

between +0.8% and +3.4%.

25

Average onshore cost variation by component



• Wellpad group and production facility costs were the

most affected by the technical changes.

• The technical changes caused an increase in wellpad

group flowline size and an increase in production facility

equipment size due to both temperature and flowrate

adjustments.


Average variations of onshore total project costs without

onshore drilling costs.

26

Average onshore cost changes by region without drilling CAPEX




Average variations of onshore construction costs by region

without onshore drilling costs.

27

Average onshore Construction cost changes by region without drilling CAPEX




Effect of drilling CAPEX on onshore project costs variations


• Similarly to offshore, the onshore drilling costs had the effect to reduce the

increase of average onshore total project costs in all regions, but in this case

the reduction is more limited.

• Without onshore drilling CAPEX, all regions still showed an increase in total

project costs.

• Average construction costs per region showed also a small increase in

variation when the drilling CAPEX is not included.

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How and why onshore project costs varied


• Average onshore project costs changes were due to the combined effect of the


• For all regions the average onshore project costs increased. The variations

were between +1.0% (Middle East) and +2.9% (Latin America).

• These regional variations were the result of the combination of market trends

and technical adjustments:

• Onshore drilling costs increased globally but with regional differences: North America

(+2.0%), Latin America (+1.9%), Australasia (+1.4%), and Far East (+1.1%) had the

largest increase in land rig day rates.

• Equipment and Materials costs increased in Latin America (+4.1%), North America

(+2.7%), Australasia (+2.8%), Middle East (+0.4%) and Africa (+0.1%); these

decreased in Europe (-0.5%) and Far East (-0.4%).

• Construction costs increased between +1.6% (Australasia) and +3.8% (Africa).

• The technical adjustment of the inlet conditions for onshore production facility has

caused an increase in Equipment and Materials costs.

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General conclusions


• Average total project costs in Q1 2018 – Q3 2017 varied approximately

between -1.5% and +3.0%.

• Onshore costs increased globally and their increase was quite uniform.

• Offshore costs decreased in the Far East, North America, Australasia and

Africa due to the reduction in installation costs.

• The majority of medium-to-large projects, offshore and onshore, had their key

cost categories (e.g. Equipment, Materials, Construction, Installation) varying

mainly between -10% and +10%.

• Small-to-medium onshore projects had their cost categories varying over the

largest percentage range as result of technical adjustments.

• Bigger changes (i.e.+40-45%) were mostly due to technical adjustments in

onshore projects affecting materials and equipment costs.

30


Offshore summary


• Average offshore total project cost variations by region were driven by

installation costs as offshore vessel day rates decreased in most of the regions.

• Offshore installation costs had the largest decrease in the Far East, North

America and Australasia.

• The regional variations are due to the combination of the cost variations of the

most relevant cost categories:

• Equipment and materials costs increased globally with the European and Middle East

projects having the largest cost variation.

• Installation costs decreased in all regions except Latin America where they stayed

almost flat.

• If offshore drilling CAPEX is not included, most of the regions show larger

increases in their average offshore total project costs; those regions with

decreasing costs show a smaller decrease or even an increase.

31


Onshore summary


• Average onshore total project cost variations by region increased globally and

were driven by drilling and construction cost.

• Onshore wellpad group and production facility costs were the most affected by

the technical changes.

• The major changes in onshore cost categories were the result of the

combination of market trends and technical adjustments:

• Onshore drilling costs increased globally, with the largest variation in North America,

Latin America, Australasia, and the Far East.

• Construction costs increased globally.

• The technical adjustments have caused an increase in equipment and materials costs

in the production facility component and significant variations in material costs in the

onshore wellpad group for small-to-medium value projects.

• If onshore drilling CAPEX is not included, all regions show larger increases in

their average onshore total project costs.

32

QUE$TOR Customer Support

[email protected]

Americas: (+1) 2817523200 / (+52) 5530676458

Europe, Middle East, and Africa: +44 (0) 1344 328 300

Asia and the Pacific Rim: (+91) 124 454 2699

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